6 Continuous Linked Settlement

Continuous Linked Settlement (CLS) is an industry initiative to eliminate the settlement risk in foreign exchange transactions. This is achieved by using a payment versus payment method, which provides a simultaneous exchange of currency values through CLS Bank International. The CLS concept is being adopted globally to reduce the risks involved in the settlement of Foreign Exchange transactions. Before CLS, each side of the trade was paid separately. Taking time-zone differences into account, this heightened the risk of one party defaulting. CLS is a real-time system that enables simultaneous settlement globally, irrespective of time zones. CLS is an ongoing process of:

• Submitting instructions - receiving payments of specified currencies from customers
• Funding - settling pairs of instructions that satisfy all criteria
• Execution - making pay-outs in specified currencies

The settlement is final and irrevocable, or funds are returned the same day.

Participating banks get real-time settlement information that helps them to manage liquidity more efficiently, reduce credit risks and introduce operational efficiencies.

The members of the CLS Bank, referred to as the Settlement Members, submit the deals through the CLS Bank which in turn will match the deals and settle the same by debiting/crediting their accounts following their instructions.

This chapter explains the maintenances required in Oracle Banking Treasury Management to support the CLS scheme as a third party participant and the processing involved in settlement of such FX transactions.

To support CLS as a third-party participant, you must:

• Maintain the CLS preferences for your branch
• Allow your customers to settle their deals via the CLS bank
• Maintain currency restrictions for customers to participate in CLS trades
• Maintain currency preferences for your branch exclusively for CLS
• Set up the calendar of holidays for the CLS bank
• Identify the financial institutions participating in CLS and the type of link with the CLS bank, whether direct or indirect
• Specify the settlement instructions for CLS deals
• Maintain an alert group for a specific CLS status

The above maintenance and the processing involved in the CLS settlement of Foreign Exchange deals are explained in detail in this topic.

This topic has the following sub-topics:

• CLS Preferences
  
• CLS deal
  This topic describes the CLS deal processing, CLS eligibility check of FX deal, message generation for CLS deals, and processing of CLS manual settlement.